Debt is a means of using your future purchasing power in the present by not having to pay immediately. While financial aid is extremely useful, most people would like to get rid of their debts as quickly as possible. So it’s instrumental to have a basic idea of the various schemes at your disposal so that you can choose the most suitable one to help you dodge your debts.
Two of the most prominent schemes to eliminate your debts are balance transfers and debt consolidation. But choosing even one among the two can be tricky if you lack out-and-out knowledge on the subject. So, here is a clearer picture of balance transfers vs. debt consolidation.
What is Balance Transfer?
The term “Balance Transfer” refers to the process where a portion of funds, either money or credit, is moved from an account in one financial institution to another. A balance transfer can be a valuable tool to manage your debt, if you know how to go about it.
Types of Available Balance Transfers
The various types of balance transfers in the financial world include credit card balance transfers, and loan transfers.
Home Loan Balance Transfers
A home loan balance transfer is where you are given the choice by a new financier to opt for lower interest rates on your home loan payments. If you have your debt balance transferred to a service provider like Bajaj Finserv you can rest assured that your Home Loan will come at the some of the lowest interest rates in the country.
Personal Loan Balance Transfers
With a personal loan balance transfer, you will find the interest you pay in the long run would be comparatively lesser. With Bajaj Finserv for example, if your loan transfer eligibility is met, they would take on the balance of your Personal Loan at much more competitive personal loan interest rates.
Credit Card Balance Transfers
A credit card balance transfer is apt if you have large amounts to pay off on your card. The amount you have to pay will be covered by the institution you transfer it to. The company, in turn, offers you a lower interest rate.
The Upside and the Downside to Balance Transfers
A balance transfer could be what you need to pay off your debts faster. When looking at the bigger picture, these transfers help in saving money. But they can be risky to take on as well. With balance transfers, you open yourself up to more debt by spending more. For instance, credit card balance transfers would reduce the payments you make on your existing bill but it can also lead to you spending more on either the old card or the one with lowered interest.
Balance transfers would be convenient for you if you are looking to clear your debts while keeping a check on how much you spend in the process. With the right research and strategy, this entire scheme is pretty much a no-brainer.
What is Debt Consolidation?
Understanding debt consolidation is important before you zero in on a financial aid for debt repayment. Debt consolidation is a way to combine all your various loans into one single debt. You can also merge all your debts into a personal loan.
This offer is considered useful by many because repayment of a single loan is easier than monthly payment of multiple bills. Additionally, when you combine all different debts into one, your principal value increases which lowers the interest rate.
Which is Better?
Though you now know the difference between balance transfer and debt consolidation, are you still confused about which scheme to go with? The suitability of the scheme depends upon your particular situation and financial scenario. If you own a home loan debt on a high APR card (Annual Percentage Rate) and are looking for a scheme that allows you to pay off the principal and also lowers your interest rate, then balance transfer would be the ideal solution.
Find a balance transfer scheme that offers a low fee and a considerable grace period. You can use this grace period to easily pay down the principle. One such Home Loan Balance Transfer scheme proposed by Bajaj Finserv offers incentives like nil foreclosure charges and 3-EMI holiday.
You can opt for debt consolidation loans if you have multiple credit cards with high balances on them and are facing problems in covering them all.
A debt consolidation program will combine each debt into one monthly payment. Depending on the program, you can also negotiate a lower monthly total.